MISSION VIEJO — A proposal for an 850-unit apartment complex continued to be debated Monday night, with members of the city staff arguing that the project would create less traffic and generate more city income than a commercial development previously planned for the area.

The 850-unit complex would be built on about 50 acres just off El Toro Road at the city's northern border.

When the plan was first unveiled by the Mission Viejo Co. in September, city officials suggested that the developer might be willing to build a $5-million library in exchange for approval of the project.

In 1990, the Mission Viejo Co. spent $12 million to develop ball fields and parks in exchange for approval of a 700-home tract. Some council members speculated that the company might, therefore, build a library.

But company officials so far have declined to make any offers, and Mayor Joseph D. Lowe said the apartment complex should be approved on its own merits.

"I'm not going to ask for anything like" the library, said Lowe. "I want to look at the merits of the project and decide from that."

The city has grounds to reject the plans. The extra 2,500 people generated by the housing project would exceed population limits set by a 1990 development agreement between the city and company that mapped future growth in Mission Viejo.

Traffic, noise and legal liability were the main issues the council grappled with Monday.

The 2,500 residents would live under a flight path used by jets returning to the El Toro Marine Corps Air Station until the base closes in 1999.

In September, the county Airport Land Use Commission recommended against the project, citing the noise caused by the military aircraft. City officials worried that approving the apartment complex, despite the airport commission's recommendation, would leave the city open to lawsuits.

Mission Viejo Co. officials said future tenants could be required to sign a lease informing them of the noise caused by Marine jets.

"We are confident that the city can (approve the project) before you tonight," said Mission Viejo Co. consultant Wayne Peterson, "without creating any liability for the city."

City Atty. Peter M. Thorson agreed that such clauses have reduced legal exposure for municipalities in the past.

Company and city officials have been negotiating recently over the possible inclusion of an indemnification clause in the city approval.